Zepp Health Corporation Reports First Quarter 2023 Unaudited Financial Results BEIJING

Health Corporation Reports First Quarter 2023 Unaudited Financial Results

May 23, 2023 /PRNewswire/ -- Zepp Health Corporation ("Zepp" or the "Company") (NYSE: ZEPP) today

reported revenues of RMB0.6 billion (US$93.9 million); a GAAP basic and diluted net loss per share of RMB0.56 (US$0.08); and a GAAP basic

and diluted net loss per ADS of RMB2.23 (US$0.32) for the first quarter ended March 31, 2023. Each ADS represents four Class A

first quarter revenue came in within our guidance range at RMB645.2 million, including 60% of self-branded revenue. Total revenue down

14.8% year-over-year, the decrease is mainly due to the macroeconomic uncertainties globally that dampened discretionary consumption especially

in the electronic devices market in the first quarter." Said Wayne Wang Huang, Chairman and CEO of Zepp Health. "We

have successfully met our objective of reducing quarterly operating expenses to RMB254 million (adjusted operating expenses to RMB230

million), and we remain dedicated to implementing stringent cost control measures in the future. Our commitment to investing in state-of-the-art

technology and product development remains steadfast. We will launch an advanced platform that integrates Zepp OS and our unique RISC-V

based chip. This approach reduces the need for additional resources and ensures the development of high-quality hardware and software.

Therefore, it allows us to develop new products quickly, inexpensively, and with outstanding quality, ultimately leading to increased

efficiency and profitability in the future. By incorporating these latest cutting-edge technologies into our smartwatch products, we have

successfully engaged with our users, grown alongside them, cultivated a thriving community, and established a distinct brand and market

"We are thrilled to introduce our highly

anticipated new products, including the Trex Ultra, and GTR mini. Moreover, as a technology-driven smart wearable and healthcare solution

provider and industry pioneer, we recently applied large language model (LLM) and Generative AI technology to our smart wearables. We

are empowering users to make informed decisions and achieve their wellness and fitness goals intelligently. These AI empowered functionalities

such as Zepp Coach, Zepp Aura, and Zepp AI Flex. Zepp Chatfacer will further enhance our products' competency. In the meantime, we strive

to enhance the user experience in Zepp OS by integrating generative AI technology. As we continue to develop Zepp OS, we will also incorporate

the latest GPT-4 technology to further advance the intelligence and functionality of the platform to outperform our competitors. Through

these efforts, we hope to provide our users with a seamless and intuitive experience that truly meets their evolving needs."

Chief Financial Officer Leon Deng added, "In

the first quarter, we experienced a shift in China's Covid-Zero Policy, which interrupted some of our new product launch schedules. As

a result, we had to postpone some releases of our new product lines to subsequent quarters, which had a negative impact on our Q1 sales.

The gross margin for Xiaomi products declined significantly because of Xiaomi's pricing policy and the deliberate clearance of our older

version self-branded products to optimize inventory levels, altogether driving our overall gross margin to 15.9% in the first quarter.

Nevertheless, our newly launched products achieved an impressive margin of 34.6% during the quarter. With inventory reaching a more reasonable

level, we are confident that our overall margin will improve in the future."

"Our cost control and productivity improvement

measures continued to drive year-over-year decreases in our operating expenses in terms of both absolute amounts and as a percentage of

revenue. As a result, we narrowed our operating loss in the first quarter by 2.9% year-over-year. Our inventory balance continued to trend

down, and we delivered a three-quarter consecutive positive operating cash inflow thanks to our efficient working capital management.

For the remainder of 2023, we will continue to strengthen our brands and products while cutting the running rate of our expenses further

as we target a turnaround in profitability in the future."

Quarter 2023 Financial Summary

First Quarter 2023 Financial Results

for the first quarter of 2023 reached RMB0.6 billion (US$93.9 million), a decrease of 14.8% from the first quarter of 2022. The

decrease in total revenues was mainly due to a 21.2% year-over-year decrease in our self-branded product sales. The decrease was in line

with the decline of consumer electronics market at large and lower consumer discretionary spending.

The US$ numbers in 2022 are referenced with the prior 6-K disclosures, translations of which are made at a rate of RMB6.3393

to US$1.00, the effective noon buying rate for March 31, 2022, as set forth in the H.10 statistical release of the Federal Reserve Board.

Adjusted net income/(loss) attributable to Zepp Health Corporation is a non-GAAP measure, which excludes share-based compensation

expenses. See "Reconciliation of GAAP and Non-GAAP Results" at the end of this press release.

Adjusted diluted net income/(loss) is the abbreviation of adjusted net income/(loss) attributable to Zepp Health Corporation,

which is a non-GAAP measure and excludes share-based compensation expenses attributable to Zepp Health Corporation and is used as the

numerator in the computation of adjusted basic and diluted net income/(loss) per ADS attributable to Zepp Health Corporation.

Total units shipped in the first quarter of 2023

decreased by 5.4% year-over-year to 3.5 million, compared with 3.7 million in the first quarter of 2022.

margin in the first quarter of 2023 was 15.9%, 4.2 percentage points lower than 20.1% in the same period of 2022. The first quarter's

lower margin was dragged down by price reduction of Mi Band 7 and clearance and write-down of old version of self-branded products.

Research and Development

and development expenses in the first quarter of 2023 were RMB117.9 million, a decrease of 19.5% year-over-year. This comprised

18.3% of revenues, versus 19.3% for the same period in 2022. The decrease was mainly driven by the research project optimization and personnel

Selling and Marketing

and marketing expenses in the first quarter of 2023 were RMB86.0 million, a decrease of 16.6% year-over-year. We pruned our retail

channels and applied a strict ROI approach on marketing campaigns which in turn lowered our overall selling and marketing expenses.

General and Administrative

and administrative expenses were RMB49.9 million in the first quarter of 2023, a decrease of 14.2% year-over-year. This comprised

7.7% of revenues, compared with 7.7% in the same period in 2022, and was largely attributable to ongoing personnel optimization and strict

administrative expense control.

Total operating expenses for the first quarter

of 2023 were RMB253.8 million, a decrease of 17.5% year-over-year, which accounted for 39.3% of revenues for the period, as compared with

40.6% in the first quarter of 2022. The adjusted operating expenses, which excludes share-based compensation, were RMB229.8 million, the

lowest level compared with the four quarters of last year. The company will continue to adjust its cost base aim at returning to profitability

Operating Income/(Loss)

Operating loss for the first quarter of 2023 was

RMB150.9 million, compared with operating loss of RMB155.4 million for the same period in 2022. The loss was mainly caused by lower revenue

scale. The first quarter is typically the season with the lowest sales, which resulted in an inability to fully cover operating expenses.

Adjusted operating loss, which excludes share-based compensation, was RMB126.9 million.

Net loss attributable to Zepp Health Corporation

for the first quarter of 2023 was RMB136.7 million, compared with RMB88.7 million of net loss in the first quarter of 2022. The adjusted

net loss attributable to Zepp Health Corporation was RMB 112.7 million, compared with RMB75.7 million for the same period of 2022. In

2022, the Company recognized RMB51.7 million gain from fair value change of long-term investment. The adjusted operation loss of the company

has narrowed this year.

Liquidity and Capital Resources

of March 31, 2023, the Company had cash and cash equivalents and restricted cash of RMB1,001.5 million (US$145.8 million), compared

with RMB973.3 million as of December 31, 2022 and RMB1052.9 million as of March 31, 2022.

The Company continued to manage its working capital

and inventory more efficiently and realized lower inventory levels at RMB799.9 million as of March 31, 2023, lower than that at the

Share Repurchase Program Update

Company previously announced in its third quarter 2021 earnings release that the board had authorized a share repurchase program of up

to US$20 million. As of March 31, 2023, the Company had used US$11.1 million to repurchase 3,689,434ADSs. On November 21,

2022, the board authorized the Company to extend its share repurchase program over the next twelve months. Pursuant to the extended share

repurchase program, the Company may repurchase its shares in the form of American depositary shares and/or the ordinary shares through

November 2023 with an aggregate value of the remaining balance under the share repurchase program. The Company expects to fund the

repurchases under the extended share repurchase program out of its existing cash balance.

the second quarter of 2023, the Company's management currently expects net revenues to be between RMB650 million and RMB850

million, compared with RMB1.11 billion in the second quarter of 2022.

It is based on current

market conditions and reflects the Company's current and preliminary estimates of market and operating conditions and customer demand,

which are all subject to change.

Company's management team will hold a conference call at 8:00 a.m. Eastern Time on Tuesday, May 23, 2023 (8:00

p.m. Beijing Time on May 23, 2023) to discuss financial results and answer questions from investors and analysts. Listeners

may access the call by dialling:

Participants should dial in at least 10 minutes

before the scheduled start time and ask to be connected to the call for "Zepp Health Corporation".

a live and archived webcast of the conference call will be available at https://ir.zepp.com/investor.